I guess as long a we end the week on a good note then we forget about all the pain and suffering that happened in the beginning of the week. I am happy to say that we are on track with being able to go with that theme because what seemed like a really bad turn for the worse at the beginning of the week has turned into a reason for hope.
We have seen some good price action in the bond markets since Wednesday which has brought the 10yr to a very acceptable 2.22%. While the economic calendar has been light this week there is concern that growth in China may finally show signs of cooling after decades of non-stop robust growth. While a cooling in the growth of China is still growth that most if not all other countries would die for, this would be the equivalent of the Yankees only finishing the season 5 games above .500. I am sure the Mets would be thrilled with that kind of season. My point being is that everything is relative. Regardless of the reason for the bond markets licking their wounds and coming back with some fight, I know that we all feel a lot better for it.
Looking ahead, we have another light economic calendar next week so traders will be taking their lead from the headlines for direction. I am encouraged that we did not continue the slide in bond yields. Having lived thru a fair amount of bear markets, they tend to be relenting. It is sort of like getting kicked in the midsection (I heightened the location point to be politically correct) as soon as you walk into the office and then the beatings just keep coming. It tends to make for a miserable existence.
However, with the exception of a few days, we did not get that feeling this time around. I think we have the presence of the Fed to thank for that (or maybe it is Tim Tebow). Like we have been saying, they are steadfast in keeping mortgage interest rates low which will happen by keeping US Treasury rates low. The Fed’s current and latest intervention called Operation Twist is scheduled to come to an end in June. Therefore the optimistic bond traders are looking for some new and creative move by the Fed come June that will facilitate a continued low rate environment. It might not be called QE3 which does appear to be off the table but Bernanke can and has been very creative so they are looking for something. I am sure the Fed was not happy about the quick rise in yields but they also were not losing too much sleep over it either. They know they have some influence and you just get the feeling they have more tricks up their sleeves. We will see…
Have a good weekend.